Merrill Lynch & Co’s top four bonus recipients received a combined $121 million just before the firm was acquired by Bank of America Corporation, according to New York Attorney General Andrew Cuomo.
In all, Merrill “secretly and prematurely” awarded $3.6 billion in bonuses, with Bank of America’s “apparent complicity,” Cuomo said in a February 10 letter to Representative Barney Frank, the Massachusetts Democrat who heads the House Committee on Financial Services. The letter was made public On Thursday as chief executives from the eight largest US banks face off against lawmakers at a committee hearing in Washington.
Cuomo, a Democrat, has been examining whether Merrill broke securities laws when it paid the bonuses. He also is cooperating with Special Inspector General Neil Barofsky in a federal probe of executive pay at banks that got money from the US Treasury’s Troubled Assets Relief Program.
“One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding,” Cuomo said in the letter.
Cuomo, who has subpoenaed the testimony of former Merrill Lynch Chief Executive Officer John Thain and Bank of America Chief Administrative Officer J Steele Alphin, said in the letter he would require top officials to answer the question. He said he plans to seek the testimony of other top executives at the firms.
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Cuomo said the $3.6 billion in bonuses were distributed to “a small number of individuals.” He said Merrill “chose to make millionaires out of a select group of 700 employees,” and that an even smaller group was awarded “gigantic bonuses.”
After the top four recipients received $121 million, the next four received a combined $62 million, he said, and the next six a combined $66 million. He didn’t identify the recipients.
Overall, the top 149 people who got bonuses received a combined $858 million, according to Cuomo’s letter, and 696 people got bonuses of $1 million or more. Merrill Lynch was an independent company last year, Scott Silvestri, a spokesman for the combined company, said.
in an e- mailed statement. Merrill management proposed and its compensation committee approved incentives, according to the statement.
“Bank of America did urge the bonuses be reduced, including those at the high end,” Silvestri said in the statement. “Although we had a right of consultation, it was their ultimate decision to make. In addition, a substantial amount of the Merrill bonuses were contractually guaranteed.” Bank of America said its top eight senior executives took no “incentive compensation” in 2008.
At the next level, the annual incentive pool was reduced by 80 per cent, it said.
Cuomo said he is probing whether the bonus payments violated New York’s debtor-creditor laws and whether the lack of disclosure violated the state’s Martin Act, New York’s principal securities law. He also said the payments and their timing raised questions about whether the firms’ senior officials and boards of directors violated their fiduciary obligations.
Cuomo said Merrill and Bank of America must have been aware in December that fourth-quarter and yearly earnings results were “disastrous.” Merrill reported January 16 that it lost $15.31 billion in the fourth quarter alone and $27 billion for the year.
Asked about Cuomo’s letter that said Merrill secretly and prematurely moved up the bonuses, apparently with Bank of America’s complicity, Frank said this morning that Bank of America CEO Kenneth D Lewis will be at On Thursday committee hearing, and “obviously we will expect him to address this.”
“ I am very disappointed in what we learned about Merrill,” said Frank, who hadn’t yet seen the letter. “I think Mr. Thain caused a lot of damage to the climate in which we’re trying to operate.”
The Merrill bonuses were reported earlier On Thursday in the New York Daily News.